About Harmonized Sales Taxes

If you’re not a Canadian this probably won’t be all that interesting to you.  However, it came up in the comments and tweets after I posted my entry about taxation in Canada.  Harmonized sales taxes have existed in the Maritimes for years, and now are coming to Ontario and British Columbia.  In Ontario, where I used to live, there was all sorts of screaming and complaining about harmonization, and it became clear, as I often observe about a lot of things in politics, that much of the most heated debate came from people who really didn’t know too much about the issue.  The multiple sales tax system used in most provinces, and which Ontario and BC intend to scrap, is a complicated and inefficient system, and in theory, harmonization should make the system more fair and reasonable, as well as cheaper for businesses spurring economic growth.

The best article about it I think was Andrew Coyne’s in Macleans magazine, which is here: http://www2.macleans.ca/2009/04/16/dalton-mcguinty-and-his-liberal-%E2%80%98tax-grab%E2%80%99/   The irony of the Conservatives federally endorsing such plans while the provincial Tories lambasted them was rich, and realistically, it was also stupid.  HST actually makes sense.  For me, I don’t have a dog in the fight now living in Nova Scotia: taxes have been harmonized here for a long time – and came, I think, with a lot of benefit.  I believe Nova Scotia’s provincial sales tax was 11% or something like that prior to harmonization, where it was combined with the 7% GST into a single 15% Harmonized Sales Tax.

That article inspired someone I know to write this – which he sent out widely.  He’s a retired customs officer and thus has some exposure to the whole taxation issue as well, he worsed primarily in the excise field as I believe.

He entitled the piece something like “Why I’m happy about the HST”

The current tax system is riddled with inequities, is expensive and complex for businesses to collect and for governments to administer!  We now have four separate schemes in each province: Both GST and PST; GST but no PST; PST but no GST and neither GST nor PST.

HST will achieve three main things:

1                    It will broaden the existing Provincial Sales Tax to cover the same range of goods and services as the GST (with very few exceptions, no more preferential treatment of some goods over another).

2                    Rebating all of the taxes (PST and GST) paid on business inputs ensuring the final consumer only pays these taxes once and at a single rate.

 3                    Simplifying the business of reporting and collecting tax with a common tax base and an integrated collection system.

Is this a “tax grab”?  Actually, No!  While the price of some goods and services will rise the price of others will fall.  This has been exactly the experience in the Atlantic Provinces where prices in general fell 0.3% and the cost of some large items fell by 3%.

 But, maybe the biggest benefit of all is the one least discussed. While the HST is neither a tax grab for the governments nor a tax cut for businesses it is a huge savings in the cost of investment. According to the TD Bank, somewhere in the neighbourhood of $6.9 BILLION will go towards the reduction of the cost of investment.  The C.D. Howe Institute calculates that Ontario’s Marginal Tax Rate will fall by 11 percentage points!  The University of Calgary’s School of Public Policy estimates that more than $47 BILLION in new investment in our Provinces over the next decade will produce some 591,000 new jobs.

 These are huge economic advantages that we desperately need to get Ontario back on track and to compete with other Provinces and countries who’ve already implemented them.

It is easy to criticize government in a free society.  Yes, there times (sometimes too often) when governments get it wrong but, I believe that, this time, they are making the best move to stimulate our economy in a real and lasting way.  Short-term schemes like bailing out poorly-managed companies and “Cash-For Clunkers” don’t come close to the real Value Added to the economic viability of this one.

 Count me in!

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